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Companies Leaving Incentive Money

On Table

 

SCOTT D. YOST

July 3, 2014

For years, the Guilford County Board of Commissioners has granted economic incentives to all who ask, with the same gleeful abandon as parade participants passing out candy to children at a Christmas parade.  But it turns out that, in many cases, those companies have failed to live up to their promises, and therefore the incentives were never paid out.

 

Guilford County Planning and Development Director Leslie Bell heads up the county department that oversees incentives, and he said O’Reilly Automotive is one instance of a company that got promised incentives from the county in return for meeting certain benchmarks but was unable to collect any of that money.

 

“O’Reilly Automotive applied in 2007 and were eligible for $204,367,” Bell said.  “They had until March 2014, but it was never finalized.”

 

In some cases, incentives packages granted by the Guilford County Board of Commissioners call for a certain number of jobs to be created, or for a specific amount of new capital investment to be pumped into the county’s tax base.  The contract may also include other verifiable performance markers.  In many cases, the companies fulfill their promises and collect the maximum amount from the county.  However, in some cases, companies have failed to deliver on those promises and therefore haven’t been able to collect the taxpayer money that the county set aside to give them.

 

High Point-based Southern Film Extruders, which makes polyethylene packaging film for bags, lamination, shrink wrap and other purposes, was eligible for $80,000 in incentives from Guilford County but only received $48,000.

 

“They applied in 2004 and went into bankruptcy in 2013,” Bell said.

 

Last October, the bankrupt company was bought by the plastics giant Sigma Plastics Group, and, when a company is bought out by another firm, the new firm loses the right to previously promised incentives.

 

Guilford County Attorney Mark Payne explained in an email: “Absent some language in the contract that the contract is applicable to successor companies, then the new company is not a party to the contract and, therefore, should not benefit from it.  Our incentive agreements typically do not have language making it applicable to successor companies; some contracts, like retail sales agreements typically do.”

 

“In addition,” Payne wrote, “the consideration the county is getting in an incentive agreement is to convince or guarantee a new business or new expansion in this area.  A new company has not given any consideration to the county since the company is already here and the new company is buying assets in place; this is further support to show no agreement between the county and the new company.”

 

The Guilford County Tax Department and Finance Department verify the amount of investment and the jobs created, and in some cases the companies simply haven’t been able to meet the criteria called for in the incentives contract that the county granted.

 

Bell, who came to work for Guilford County last summer, said he doesn’t know the complete history of why companies end up not getting agreed upon incentives.

 

“I certainly can’t tell you the specific issues with each company,” Bell said.  “Sometimes the contract performance threshold was not met, but also the contract might say a criteria must be met for ‘five consecutive years,’ and then the company didn’t meet the requirement in one of those years.”

 

In other cases, Bell said, a company failed to create promised jobs or didn’t make the required capital investment soon enough.

 

“The time ran out on them,” he said of some companies.

 

For instance, Purolator Facet, which makes filters for aviation, aerospace and other industries, along with other products, was granted $92,000 in county incentives but will get none.

 

In some cases, companies get some incentives money but don’t qualify for the full amount called for in the package.  Sherwin Williams was awarded $24,000 and collected $20,937 of that.  The chemical maker Stockhausen was awarded $194,000 and collected $191,413.

 

Other companies may eventually collect, but as of now they are on hold with regard to incentives.  Solstas Lab Partners, a medical testing company, for instance, was awarded a $500,000 incentives package by the county, but hasn’t been paid any of that.  Guilford County doesn’t have any of that amount budgeted for that purpose in the new fiscal year that started July 1, and the county has planned no money for fiscal 2015-2016 to pay Solstas either.  The county does have the $500,000 amount listed for payout in “Future years.”

 

Thomas Built Buses was awarded a maximum incentives package of $450,000 by Guilford County and has only collected half of that.  No money is budgeted in the next two years to pay that company; however, the remaining $225,000, like the money planned for Solstas, is listed on the county’s “Future years” ledger in the event the company fulfills its requirements before the agreement expires.

 

Bell said there’s a wide variety of differences in the incentives contracts the county grants.

 

“Some contracts are for three years and some are for 10 years,” Bell said.

 

He said that, with all the factors at play and the uncertainty of if and when the county will have to pay out the money, the budgeting process is complicated.

 

“It’s a little tricky,” he said.

 

“We assume they will meet the maximum,” Bell said.  “Once they sign a contract for $300,000, we can’t speculate [that they won’t meet the requirements].”

 

Over the last few months, $216,000 has been freed up for the county to spend.  Earlier in the year the county planned to spend that money on incentives but the county will now not have to pay it out in fiscal 2014-2015.

 

Guilford County Budget Director Mike Halford wrote in an email of the incentives budgeting process: “We budget what we expect to have to pay based on planned milestones and executed contracts.  If a company didn’t make it to the updated list of expected incentive payments, it may be that our estimate of when the company would achieve the milestone(s) was off, not that a company isn’t making progress or won’t meet the milestone(s) eventually and be eligible for the incentive payment(s).”

 

Halford wrote that each year Guilford County’s adopted budget takes the “maximum exposure approach” and it includes funds for what the county may have to pay during the fiscal year given an incentives contract’s milestones.

 

 “The incentives are spread over a number of years (and distributed after taxes have been paid and/or jobs created), so we’re not budgeting the full amount in one year,” he wrote.  “So, in most cases, it is the maximum incentive amount a company could receive during the fiscal year as outlined in the contract.”

 

Halford said that, if the incentive agreement provides $300,000 and is structured to pay up to $100,000 in the first year for a certain number of jobs or amount of investment, and $100,000 in the second year for meeting certain requirements, and $100,000 in the third for meeting other requirements, then the county would budget the $100,000 maximum annual exposure in each of those years.

 

“The incentive contracts have different goals, payout schedules, etc., so this is just an example,” Halford wrote.

 

According to Halford, any “extra” incentives money that’s left over for whatever reason is returned to the county’s fund balance at the end of the fiscal year or is moved to another expenditure that has been approved by the Board of Commissioners.

 

Bell also said that, in some cases, Guilford County incentives grants to the companies are accompanied by even larger state grants.  State grants may or may not be structured in a similar manner to the counties incentives packages.

 

Guilford County Commissioner Jeff Phillips raised the question earlier this year as to how well the county has checked in the past to make sure incentives requirements are being met.  He said he was alarmed by a conversation he had with the CEO of a company who told Phillips that his company had received incentives from Guilford County, but the county had never once contacted the company to request documentation to show that the required milestones were being met.

 

Phillips said the CEO told him that the company could quickly and easily produce any of the needed records, but had never been asked for them.

 

Guilford County Finance Director Reid Baker said his department does extensive checks to make sure all incentives requirements are being fulfilled before payment is made.

 

Guilford County Tax Director Ben Chavis said that the Tax Department checks to make sure investment criteria are being met.

 

“We check to see if the actual investment has shown up on the books,” Chavis said.

 

The number of new jobs created is checked in some instances by matching the claims of job creation against Employment Security Commission records.

 

Phillips became commissioner in December 2012 and said this week that he doesn’t know everything that went on before he took his seat on the board, but he added that he had the impression that the county hasn’t always tracked the incentives obligations as rigorously as it should have.

 

“As long as I’m on the board, I intend to see that we are holding the companies accountable to their commitments before we release any funds,” Phillips said.

 

When Chavis was asked if his department had ever caught a company trying to collect on incentives money that it did not actually qualify for, he said he was unaware of that ever happening.

 

“I don’t know of any cases of that,” Chavis said,

 

Baker also said he did not know of any.

 

“I’m not personally aware of any situations,” Baker said.

 

He added that, over the years, the Planning and Development Department has been the center of the vetting process for incentives packages and employees in that department who would have been more likely than him to see potential deception have now retired.

 

 

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